RNS Number:6921E
DIC Entertainment Holdings, Inc.
28 September 2007
28 September 2007
The information contained herein is restricted and is not for publication,
release or distribution in or into the United States of America, Canada,
Australia, New Zealand, the Republic of Ireland, South Africa or Japan or to any
national, resident or citizen of the United States of America, Canada, Australia
or Japan.
DIC Entertainment Holdings, Inc.
Interim Results for the Period Ended 30th June 2007
Highlights
* Net Revenues increased 6% to $33.8M (2006: $31.9M)
* Non-GAAP Adjusted EBITDA(1) fell $16.7M to a loss of $11.7M (2006: profit of
$5.0M) with a pre-tax loss of $15.5M (2006: profit of $3.0M) largely as a
result of provisions relating to four brands, without which results would
have would have been on target relative to market expectations. The impact
of these provisions reduces Non-GAAP Adjusted EBITDA and pre-tax profits,
relative to current market expectations, by approximately $9.4 million and
$9.9 million, respectively. Of the Adjusted EBITDA impact of $9.4 million,
approximately $2.8 million has a negative cash effect on the current year.
* The provisions all relate to activities originated well over a year and a
half ago and have no impact on our many positive developments, the
operational initiatives launched during the past year and the DIC catalogue.
* Successful launch of KidsCo, the new joint venture international children's
television channel in the first five of its projected 40 markets. Initial
launch targets for revenue and subscriptions thusfar exceeded.
* CPLG, the Company's international licensing business acquired in June 2006,
performed well during the period. In addition to activity around DIC-owned
properties, CPLG continues to represent a wide range of strong third party
brands.
* Strong brand activities include:
o Strawberry Shortcake, reached a milestone of $2 Billion in total worldwide
retail sales (since 2003), continued to expand licenses including in China
and aired for the first time on US network television this month.
o Horseland, a newer property, has an extensive merchandising programme in
place for the fourth quarter of the year. Internationally, Horseland is
performing well with global television placement in key markets including
France, Germany, Benelux, UK and Norway.
o The Mommy & Me exclusive five year agreement with Wal-Mart launched in
over 1,290 US stores. DIC and Wal-Mart are preparing for an expansion of
the line.
* DIC continues to diversify its portfolio and now has 15 active brands, as
opposed to three during 2006.
* The DIC Online Network is developing successfully, now reaching over 700,000
youngsters each month and receiving over 200 million page views, a ten fold
increase on 2006.
Andy Heyward, Chairman and Chief Executive Officer, DIC Entertainment Holdings,
Inc., commented:
"Our focus continues to be on building the global presence of our brands and to
maximise exploitation opportunities for our substantial library across all forms
of media both existing and new. In addition to our merchandising and licensing
activities, we have entered into the KidsCo joint venture which has shown early
promise, we have successfully collaborated with American Greetings on the CBS
block, CPLG continues to perform strongly, we continue to produce new
programming, such as Dino Squad and Sushi Pack, we have successfully launched
new consumer product brands such as Horseland and Cake, and we have developed a
large and advanced interactive web network for children."
For further information please contact:
Simon Forrest, Investor Relations, DIC Tel: +44 (0) 7885 317746
Craig Breheny, Ash Spiegelberg, Brunswick. Tel: +44 (0) 20 7404 5959
This announcement is not for publication, release or distribution, directly or
indirectly, in, into or from the United States of America, Canada, Australia,
New Zealand, the Republic of Ireland, South Africa or Japan or their respective
territories or possessions.
This announcement does not constitute or form part of an offer for sale or
subscription of, or any solicitation of an offer to purchase or subscribe for,
shares or other securities. The price and value of, and income from, shares and
other securities may go down as well as up. And past performance cannot be
relied upon as a guide to future performance. Persons needing advice should
consult a professional adviser.
Any securities referred to herein have not been registered in any jurisdiction,
and, in particular, will not be registered under the U.S. Securities Act of
1933, as amended, or any applicable state securities laws and may not be offered
or sold in the United States absent registration or an applicable exemption from
such registration requirements.
To supplement DIC's consolidated financial statements presented on a US
Generally Accepted Accounting Principles (US GAAP) basis, DIC is providing
certain income statement information that is not calculated according to US GAAP
(Adjusted EBITDA). DIC believes that its non-US GAAP disclosures are useful in
evaluating its operating results as this information supplies the user with
another view of the matching of costs and expenses. The non-US GAAP information
presented is supplemental and is not purported to be a substitute for
information prepared in accordance with US GAAP.
Information contained in this announcement may include 'forward looking
statements'. All statements other than statements of historical facts included
herein, including, without limitation, those regarding DIC's financial position,
business strategy, plans and objectives of management for future operations
(including development plans and objectives relating to DIC's business) are
forward- looking statements.
Such forward-looking statements are based on a number of assumptions regarding
DIC's present and future business strategies and the environment in which DIC
expects to operate in the future. These forward-looking statements speak only
as to the date of this announcement and cannot be relied upon as a guide to
future performance. DIC expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statements contained
in this announcement to reflect any changes in its expectations with regard
thereto or any change in events, conditions or circumstances on which any
statement is based.
DIC ENTERTAINMENT HOLDINGS, INC.
INTERIM STATEMENT FOR THE SIX MONTH PERIOD ENDED
30th JUNE 2007
CHAIRMAN'S STATEMENT
OVERVIEW
In the first half of the year, DIC Entertainment Holdings, Inc. ("DIC" or the
"Company") saw year-on-year growth in revenues, primarily as a result of the
inclusion of Copyright Promotions Licensing Group's ("CPLG") results and CBS
advertising revenues for the first six months of 2007, and saw strong
operational progress on a number of key fronts. The Company now has 15 brands in
active development, including both established international brands as well as
several new and emerging properties. This brand portfolio has the support of our
international television sales and merchandising operations as well as
guaranteed broadcast on our US and international TV distribution platforms. DIC
is also increasingly benefiting from our extensive online network and new media
activities, including a soon-to-be-unveiled online streaming cartoon network/
service.
We have seen many positive developments during the period, all of which are
expected to bear fruit in future periods. Nevertheless, recent events, the
possibility of which we previously announced to the market, have caused us to
conclude that it is necessary to make provisions in connection with four brands:
for Trolls/Trollz as a consequence of its previously reported underperformance
as a licensed property; for Madeline as a result of ongoing arbitration; for
China Retail Management ("CRM"), our McDonald's licensee in Asia, where we
believe it is prudent to make a provision for amounts owed to us and which are
currently the subject of a previously announced legal action; and the Slumber
Party Girls ("SPG"), which we have decided not to go forward with as a live
action property and, as a result, required a non-cash write-down in the current
period. The impact of these provisions will be to reduce Non-GAAP Adjusted
EBITDA and pre-tax profits for the period, relative to current market
expectations, by approximately $9.4 million and $9.9 million, respectively.
These provisions all relate to activities originated well over a year and a half
ago and have no impact on our many positive properties, the operational
initiatives launched in recent months and the DIC catalogue.
Consequently during the period, while Net Revenues increased 6% to $33.8 million
(2006: $31.9 million), Adjusted EBITDA fell $16.7 million to a loss of $11.7
million (2006: profit of $5.0 million), resulting in a pre-tax loss of $15.5
million (2006: profit of $3.0 million) and fully diluted earnings per share
decreased to a loss of $0.40 compared to the fully diluted per share profit of
$0.05 for the same period in 2006. Without the provisions announced today,
Adjusted EBITDA during the period would have been a loss of $2.4 million, which
would have put us on target relative to market expectations for the full year
given DIC's seasonal profitability weighted towards the latter half of the year.
As stated above, recent management initiatives are working well and showing
solid progress in expanding the Company's activities - namely the successful
launch of our international joint venture children's channel, KidsCo, which
began broadcasting to five of its projected 40 markets earlier this month, the
value of which has been validated by the recent sale of one of our partner's
interest in KidsCo to NBC Universal; the early success for our newer properties
Horseland and Cake; a raft of new consumer product launches for established
properties such as Strawberry Shortcake and Mommy & Me; the rapid expansion of
our interactive/new media activities and the continuing success of CPLG, our
wholly-owned international licensing and merchandising subsidiary. Another
positive initiative during the period was our announcement in April 2007 of
DIC's relationship with American Greetings Properties ("AG") on the CBS Saturday
morning block. Care Bears and Strawberry Shortcake, both AG properties, are
featured in one hour of the three hour kids programming block, Kewlopolis. DIC
and AG are also co-producing Sushi Pack which will launch on the CBS Saturday
morning block later this year.
CURRENT PERIOD ADJUSTMENTS
The adjustments for the current period referred to above are a consequence of
the following:
Trolls/Trollz: As a result of the poor licensing performance of this brand, we
have made a provision of $2.3 million to cover previously anticipated revenues
from which the Company will now not benefit, along with the write-down of
production costs. Trollz remains a popular television property and has a loyal
following and large online community. However, its popularity has not
translated into the high level of consumer product sales anticipated by DIC or
our licensing partners. The impact of this provision is to reduce both Adjusted
EBITDA and pretax amounts by $2.3 million.
Madeline: As reported in the 2006 Annual Report and Accounts, we have been
involved in arbitration for over two years with the late author's family. An
August 2007 arbitration decision awarded the claimants $1.2 million, including
audit fees and interest, in excess of what we had previously reserved. The
impact of the award and associated legal costs reduced Adjusted EBITDA by $1.1
million and reduced pretax amounts by $1.4 million during the period as a result
of the interest included in the arbitration award. We intend to file a motion
to vacate the arbitration award.
McDonald's/Cornerstone contract: As previously announced we are currently in
litigation over amounts due to us and McDonald's Corporation by China Overseas
Investment Limited ("COIL"), a related company of CRM, the master toy and
apparel licensee for McDonald's McKids line in Asia (excluding Japan and India).
When we announced the litigation, we stated we would report back on the matter
when there was more clarity. While there has been no fundamental change in the
situation and the legal action is now being pursued we believe it prudent to
make a provision of $3.7 million to reserve for the receivables at risk. The net
reduction to both Adjusted EBITDA and pre-tax amounts is approximately $1.83
million.
Slumber Party Girls (SPG): Due to the slower than anticipated development of
this property and the recent weaker than expected performance of a competitor's
'tween' live action theatrical movie musical release in August 2007, we have
decided to abandon SPG as a live action property. This decision warrants a
write-off of the development and production-related costs surrounding the
property, for a total reduction to Adjusted EBITDA of $4.1 million and to pretax
amounts of $4.3 million which includes the write-off of the related trademarks.
FINANCIAL REVIEW
Revenue for the six months ended 30 June 2007 increased by 6% or $1.9 million
over the revenue for the corresponding period in 2006. The increase was
primarily attributed to the inclusion of CPLG and CBS advertising revenues for
the full six months ended 30 June 2007.
Operating profit for the six months ended 30 June 2007 decreased by $17.4
million over the corresponding period in 2006. The decrease was primarily due to
the inclusion of the fees associated with broadcasting on CBS in 2007, film cost
write-downs and an increase in the allowance for bad debts on the Trolls/Trollz
properties due to the continued underperformance of the brand; film costs
write-downs related to the SPG brand due to our decision not to pursue this as a
live action property; increased participations payable on the Madeline brand due
to an unfavourable ruling in the arbitration proceedings; and a provision for
the amounts due from COIL regarding McDonald's licensing and merchandising in
Asia. Non-GAAP based Adjusted EBITDA decreased $16.7 million to a loss of $11.7
million (2006: profit of $5.0 million) as a result of the increased expenses
noted above. The total $9.4 million of provisions on an Adjusted EBITDA basis
has an approximate negative cash flow impact of $2.8 million during the current
year.
Included in Operating Expenses is a charge for the amortisation of the
investment in film and TV programming of $9.0 million in 2007 (2006: $5.7
million). The increase is attributable to the film cost write-downs on the
Trolls/Trollz and SPG brands noted above. The Company continues to amortise
investments in programming over an average life of 10 years or less.
At 30 June 2007, $31.8 million was outstanding under DIC's Credit Facility,
compared with $23.2 million at the end of 2006. Interest on the Company's
Credit Facility was $1.4 million, $1.1 million greater than in 2006 due to
increased borrowings during the first six months of 2007. Cash and cash
equivalents increased from $3.4 million at 2006 year-end to $5.8 million at 30
June 2007. Management will continue to closely monitor the Company's cash and
debt position.
The provision for income taxes of $1.5 million represents income tax on the
profits of CPLG and foreign withholding taxes generated on the Company's non-US
based revenue. The increase of $0.8 million in 2007 is primarily attributable to
the inclusion of CPLG during the first half of 2007. The Company continues to
carry forward tax losses for US tax purposes of approximately $11 million.
In April of 2007, the Company, along with Sparrowhawk Media and Nelvana
Enterprises, announced a strategic joint venture to launch a multi-platform
global television channel for children and families called KidsCo. The joint
venture requires DIC to invest up to $4 million over the next two years if
certain revenue and subscription thresholds are achieved. As of 1 September
2007, the Company has invested $1.9 million of this $4 million in the joint
venture.
During the six months ended 30 June 2007, the Company had invested approximately
$7.0 million in new development and production.
OPERATIONAL REVIEW
Brand Development
The Company now has 15 brands in widespread exploitation - some strongly
US-centric, others with far wider international appeal. Our brand development
activities include both domestic and international TV and home entertainment
sales, new media exploitation and licensing and merchandising. Highlights of
this activity included:
* During the period, Strawberry Shortcake reached a new milestone with more
than $2 billion dollars achieved in worldwide retail sales (cumulative 2003
- present). In addition to the existing 300 licensees worldwide, the Company
further developed a raft of new US product lines with master toy licensee,
Playmates Toys. There were three new DVD launches through Fox Home
Entertainment, and further releases of books, music and videogames.
Internationally, Strawberry Shortcake licensing activities continue to
flourish with a wide range of deals covering publishing, partworks, live
shows and the renewal of master toy partnerships in Europe (including the
UK), Latin America, Asia Pacific and an expanded licensing programme in
mainland China, Hong Kong and Taiwan. International TV sales continued
strongly with sales to leading networks including those in China, Brazil,
Mexico, Germany, France and Italy. A key recent development was the first
time screening of the series on US network television on the Kewlopolis
block on CBS in September.
* Horseland, a newer property, is proving to have wide appeal as both a
television property and a strong licensing brand. In the US there is now an
extensive merchandising programme in place for the fourth quarter of the
year covering key categories including toys, home entertainment, publishing,
apparel, domestics, sleepwear, novelty, stationery and more. The core
demographic for Horseland is Girls 6 - 11 years-old with a secondary market
of horse enthusiasts and collectors. Horseland currently airs on Kewlopolis
and has a strong web presence. Internationally, Horseland is now selling
well with television placement in France, Germany, Benelux, UK, Norway,
Sweden, Portugal, Greece, Central and Latin America, and Canada. In the key
European markets the show is scoring strong ratings which will be followed
up with licensed product launches in 2008.
* Mommy & Me is a property we believe has great potential. Earlier this
year, we entered into a five-year agreement with Wal-Mart to be its
exclusive in-house brand targeted to moms with children under the age of
five. The initial phase of the Wal-Mart programme launched in over 1,290
stores across the US starting with preschool products positioned for
first-time mothers with busy schedules. The initial product line features 12
preschool products. DIC assisted the launch with an extensive marketing
campaign including print advertising and new and updated online initiatives
at www.mommyandme.com. DIC and Wal-Mart are now preparing for an expansion
of the line in late 2008, including additional products, product lines and
shelf space in a variety of departments and consumer product categories,
including maternity products.
* During the period DIC prepared for the summer launch of Cake, a unique "do
it yourself" brand for "tween" girls, in Wal-Mart and K-mart stores across
the US. Horizon, our North American licensee, has created a 13-item
programme of craft products and initial sales reports have been encouraging.
Cake, a live-action, reality-based series airing on the CBS Saturday morning
kids block, is positioned to promote self-expression, while instilling
confidence and encouraging individual style.
* The Company unveiled Dino Squad a new brand based around a 26 episode x 22
minute action adventure television series which will screen later in the
year in the US on the CBS Saturday morning programming block on Kewlopolis.
DIC will create a comprehensive consumer products programme for the property
covering toys, publishing, entertainment, apparel and more. The target
audience is Children 6 - 11 years-old.
* DIC has also joined forces with AG to introduce Sushi Pack to the
licensing industry. The new animated series starts broadcasting on the
Kewlopolis block later this year. The 52 episode x 11 minute television
series is being co-produced with AG with DIC providing the production work
and handling international distribution and licensing and AG handling all US
and Canadian sales. AG is currently adding licensees to build a major US
merchandise programme for Boys 4 - 6 years-old and Girls 6 - 8 years-old.
* Preparations are also underway for the fourth quarter launch of new
consumer products for the classic Madeline brand which has aired on our CBS
Saturday morning block, including direct-to-video titles from Fox Home
Entertainment and a new book from Viking Books, a division of Penguin.
CPLG
CPLG, the Company's international licensing business acquired in June 2006,
performed well during the period. In addition to activity around DIC-owned
properties, CPLG continues to represent a wide range of strong third party
brands. So far this year, CPLG has worked on licensing programmes for three of
the year's biggest movie franchises: Spider-Man 3, Shrek the Third and The
Simpsons Movie. CPLG's four year renewal of its representation of the English
Football Association kicked off strongly with the new licensing programme
nearing completion for the 2007/2008 period. Highlights include the expansion
of the video game category to three key partners as opposed to one in the past.
Looking forward, CPLG has also been appointed to represent Dreamworks
Animation's summer 2008 animated film Kung Fu Panda and the upcoming Bee Movie
scheduled for Holiday 2007 release. CPLG's growth has also been fueled by strong
results from the local European rights that the company has been developing the
past few years. In Germany, "Die Wilden Kerle," which follows the story of a
youth football team and has been brought to life through books and film, has
been a pleasing licensing success for CPLG's German office and in the
Netherlands, licensing around the theme park "De Efteling" has grown through
CPLG's Benelux efforts.
KidsCo
KidsCo, our new international children's television channel joint venture, which
we announced last April, successfully launched earlier this month in the Central
and Eastern European countries of Romania, Hungary, Russia, Turkey and Poland.
Encouragingly, initial launch targets for revenue and subscriptions were
exceeded. KidsCo is a powerful alliance among DIC, Sparrowhawk Media (the
international pay-TV broadcaster currently in the process of being acquired by
NBC Universal) and Canadian-based Corus Entertainment's Nelvana Enterprises with
each party owning one-third of the new channel. Carriage deals have also been
signed in the Ukraine, where KidsCo will begin airing in October, and in Asia
Pacific, where the service rolls out in early 2008. It is anticipated that
KidsCo will be available in up to 40 territories - including Europe and Latin
America - within the next 18 months. KidsCo, a 24/7 multi-platform channel,
utilises Sparrowhawk's state-of-the-art broadcast distribution facility in the
US and its international network of affiliates. DIC's content will eventually
represent up to 40% of the global channels' output. The channel remains on
course to be earnings enhancing by the end of year three.
New Media Activities
The Company has spent the past year investing in and developing the DIC Online
Network. We are pleased to say that it now reaches over 700,000 youngsters each
month and receives over 200 million page views, a ten fold increase compared to
2006 (traffic numbers based on DIC's internal server tracking). In addition to
growing volumes of visitors to our sites, the amount of time spent on these
sites is increasing. For example, Trollz.com with over 300,000 unique visitors
per month has an average user visitor time of over 20 minutes (versus an average
of 1.5 minutes for all sites and 3.5 minutes for branded sites (source: Media
Buy Planner 2007)). The increase of DIC's reach will continue into 2008, both
supporting the launch of new brands and continuing to promote existing
properties. As the DIC Online Network grows, we are looking closely at a number
of high traffic sites for acquisition and/or representation opportunities. We
expect over 15 different properties to comprise our online network by the end of
2008.
Specific highlights in the period include the imminent launch of the new DIC
library cartoon streaming network/service and the continued updating of the
Mommy & Me website (mommyandme.com) which is aimed at mothers-to-be and new
mothers. Relaunched in July with an array of new features and a more
user-friendly interface, the site has seen an immediate increase in traffic of
over 200% from July 2007 to August 2007 and a positive response from its users.
As we move into 2008, we will be further expanding the content and features of
the site to drive market share in the "new mom" online market. The other major
event during the period under review was the launch of KewlMag.com (a spin-off
from the print magazine, KEWL, a joint venture in which DIC is a partner). This
new site, in which DIC controls the traffic, is winning audiences, (including
from competitor sites) in both traffic and page views. The site attracts the
older 8 - 14 audience with daily updates and the latest news and videos on the
top teen celebrities.
Other new site developments include preparations for the November launch on
television and online of Dino Squad. Utilising new technology, the site will
offer users an in-browser 3D interface that loads quickly and immerses them in
the world of Dino Squad. We anticipate that regular game updates and new
features rolled out each month will grow the community and generate demand
leading up to the toy release in 2008.
One of the most exciting new media developments is the upcoming launch of
KEWLCartoons.com, which features 24/7 video streaming of content from DIC's
large library of animated content. This free site, supported by advertising
revenues, adds community features including the ability to safe-chat with other
children watching the same program as you, posting of "shout-outs," daily polls
and DIC-branded games, all while watching the programming.
STAFF
We would like to thank our entire team for their contribution to DIC's
performance in the first half of 2007. Throughout a period of great activity
DIC's staff have shown creativity, dedication and adaptability.
DIVIDEND
The Company is focused on an aggressive growth strategy that will require
continued investments during the next few years. The Company will not pay
dividends in respect of the 2007 half year period. We will however keep this
policy under regular review.
CURRENT TRADING AND PROSPECTS
The write-downs on the four matters discussed above, all of which date to
activities originated over 18 months ago, along with additional costs the
Company expects to incur and revenues it will lose related to such matters over
the balance of the year, will cause our Adjusted EBITDA to fall approximately
$11.5 - 12.5 million and increase our pre-tax loss by approximately $12.5 - 13.5
million below market expectations.
Our focus continues to be on building the global presence of our brands and to
maximise exploitation opportunities for our substantial library across all forms
of media both existing and new. As previously discussed, in addition to our
merchandising and licensing activities, we have entered into the KidsCo joint
venture which has shown early promise, we have successfully collaborated with
American Greetings on the CBS block, CPLG continues to perform strongly, we
continue to produce new programming such as Dino Squad and Sushi Pack, we have
successfully launched new consumer product brands such as Horseland and Cake,
and we have developed a large and advanced interactive web network for children.
DIC Entertainment Holdings, Inc.
UNAUDITED INTERIM RESULTS
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2007
DIC Entertainment Holdings, Inc.
Consolidated Statements of Operations
(Unaudited) (Unaudited) (Audited)
6 months to 6 months to Year ended
30 June 30 June 31 December
2007 2006 2006
Note $'000 $'000 $'000
Net revenues 33,796 31,869 81,697
Operating expenses:
Film and television cost amortisation and
write-downs 9,043 5,730 13,850
Participation and distribution costs 13,810 11,641 28,438
Selling, general and administrative 23,184 10,521 30,115
Depreciation and amortisation 1,773 605 2,088
Total operating expenses 47,810 28,497 74,491
Operating (loss) profit (14,014) 3,372 7,206
Other income/(expenses)
Bank interest expense, net:
Interest on credit facilities (1,447) (368) (1,610)
Total interest expense, net (1,447) (368) (1,610)
Foreign exchange gain (loss) 148 (48) 67
Equity in losses, net of earnings, of equity
investments (168) - (69)
(Loss) / profit before income taxes (15,481) 2,956 5,594
Provision for income taxes 4 (1,524) (715) (2,314)
Net (loss) / profit (17,005) 2,241 3,280
Earnings per share: 3
Basic earnings (loss) per Common Share $ (0.40) $ 0.05 $ 0.08
Diluted earnings (loss) per Common Share $ (0.40) $ 0.05 $ 0.08
DIC Entertainment Holdings, Inc.
Consolidated Balance Sheets
(Unaudited ) (Unaudited ) (Audited )
At At At
30 June 30 June 31 December
2007 2006 2006
$'000 $'000 $'000
Assets
Cash and cash equivalents 5,787 4,963 3,377
Accounts receivable, net 30,757 24,904 39,252
Notes receivable from related parties 123 830 980
Prepaid expenses and other assets 10,704 5,973 9,800
Property and equipment, net 3,476 3,199 3,696
Goodwill 6,799 6,734 5,334
Film and television costs, net 53,617 54,344 55,633
Intangibles, net 14,277 13,543 14,938
Total assets 125,540 114,490 133,010
Liabilities and stockholders' equity
Accounts payable and accrued expenses 10,825 20,176 12,458
Participations payable 25,132 8,228 23,188
Deferred revenues 23,293 23,488 24,205
Revolving line of credit 31,814 15,600 23,214
Deferred tax liability 1,358 - 1,278
Total liabilities 92,422 67,492 84,343
Stockholders' equity:
Common shares, $0.0005 par value, 220,000 shares authorised;
42,843 shares issued and outstanding at 30 June 2007, 42,398
shares issued and outstanding at 30 June 2006 and 31 December
2006 43 42 42
Additional paid-in capital 71,025 68,748 69,561
Accumulated other comprehensive loss (154) 39 (145)
Accumulated deficit (37,796) (21,831) (20,791)
Total stockholders' equity 33,118 46,998 48,667
Total liabilities and stockholders' equity 125,540 114,490 133,010
DIC Entertainment Holdings, Inc.
Consolidated Statement of Cash Flows
(Unaudited) (Unaudited) (Audited)
6 months to 6 months to Year ended
30 June 30 June 31 December
2007 2006 2006
$'000 $'000 $'000
Cash flows from operating activities:
Net (loss) profit (17,005) 2,241 3,280
Adjustment to reconcile to net cash used in operating
activities:
activities:
Amortisation of write-downs and film and television costs 9,043 5,730 13,850
Depreciation and amortisation 1,773 605 2,088
Provision for bad debts 4,667 596 2,603
Compensation expense related to the issue of options 533 274 765
Equity in losses of equity investments 168 - 69
Amortisation of debt issuance costs 171 175 346
Changes in operating assets and liabilities:
Accounts receivable 3,828 933 (20,611)
Film and television costs (7,027) (5,777) (15,186)
Intangible assets (138) (37) (318)
Prepaid expenses and other assets (391) (3,212) (4,496)
Accounts payable and accrued expenses (1,633) (4,836) (3,103)
Participations payable 1,944 1,904 7,021
Deferred revenues (913) (1,816) 1,619
Deferred tax liability 80 1,278
Net cash used by operating activities (4,889) (3,183) (10,795)
Cash flows from investing activities:
Purchase of property and equipment (751) (367) (1,643)
Investment in subsidiaries (1,387) - (359)
Advances to related parties 857 (830) (1,108)
Cash paid for business acquisition, net of cash acquired - (3,670) (3,696)
Net cash used in investing activities (1,281) (4,904) (6,806)
Cash flows from financing activities:
Payments under revolving credit line (7,300) - (50,144)
Borrowings under revolving credit line 15,900 12,166 70,100
Tax benefit from stock options exercised - - 322
Share issuance costs - (107) (107)
Issuance of convertible loan notes -
-
Net cash provided by financing activities 8,600 12,059 20,171
Effects of foreign exchange rates on cash (9) 39 (145)
Net increase (decrease) in cash and cash equivalents 2,420 3,972 2,570
Cash and cash equivalents at beginning of period 3,377 952 952
Cash and cash equivalents at end of period 5,787 4,963 3,377
Supplemental disclosures of cash paid for:
Interest 1,732 193 1,270
Income tax 1,272 676 1,085
Non-cash investing and financing activities:
Business acquisitions
Fair value of assets acquired - 26,137 26,137
Less liabilities assumed - 18,491 18,465
Net assets acquired - 7,646 7,672
Less cash acquired in business acquisition - 3,976 3,976
Net cash paid for business acquisition - 3,670 3,696
DIC Entertainment Holdings, Inc.
Notes To Consolidated Financial Statements (Continued)
30 June 2007 and 2006
1. Interim Financial Information
The interim financial information covers the periods from 1 January to 30 June
2007 and 2006, is unaudited and does not constitute statutory statements. The
financial information has been prepared in accordance with US GAAP. Certain
re-classifications have been made to the 2006 figures to conform to the 2007
presentation. The Directors are responsible for the historical financial
information and the contents of this document in which it is included.
2. Significant Accounting Policies
The interim financial information has been prepared in accordance with principal
accounting policies as set out in the 2006 annual report and audited financial
statements.
The Company is in the process of adopting FIN 48 (Accounting for Uncertainty in
Income Taxes). The Company does not believe the adoption of FIN 48 will have a
material impact on the financial statements.
3. Earnings per share
Basic earnings per share are computed by dividing net profit/(loss) by the
weighted average number of shares outstanding during each period. Shares
reissued during the period and shares reacquired during the period are weighted
for the portion of the period that they were outstanding. Diluted earnings per
share are computed in a manner consistent with that of basic earnings per share
while giving effect to all potentially dilutive common shares that were
outstanding during the period.
(Unaudited) (Unaudited) (Unaudited)
6 months to 6 months to 12 months to
30 June 30 June 31 December
2007 2006 2006
$000 $000 $000
Profit/(Loss) for the financial period (17,005) 2,241 3,280
6 months to 6 months to 12 months to
30 June 30 June 31 December
2007 2006 2006
Shares Shares Shares
000 000 000
Weighted average common shares outstanding - basic 42,420 42,398 42,398
Effect of stock options and warrants 0 544 190
Weighted average common shares outstanding - diluted 42,420 42,942 42,588
As of 30 June 2007, options and warrants totaling 2,339,000 were excluded from
the calculation because their effect was anti-dilutive.
4. Taxation
Taxation for the six months to 30 June 2007 is based on the effective rate of
taxation which is estimated to apply for the year ending 31 December 2007.
5. Share Option Plan
On 1 January 2006 the Company adopted FAS 123R. As a result, $534,000 of stock
option compensation is included in selling, general and administrative for the
six months to 30 June 2007 ($274,000 for the same period in 2006).
6. Kidsco
In April of 2007, the Company, along with Sparrowhawk Media and Nelvana
Enterprises, through a strategic joint venture, launched a multi-platform global
television channel for children and families called KidsCo. The joint venture
requires the Company to invest up to $4 million over the next two years if
certain revenue and subscription thresholds are achieved. As of 1 September
2007, the Company has invested $1.9 million of this $4 million in the joint
venture.
7. Liquidity
The Company requires substantial working capital to fund its operations. The
Company has historically used cash generated from its operations, equity capital
and bank financings to fund capital expenditures, as well as to invest in and
operate its existing operations. The Company believes that its current cash and
receivable balances, as supplemented by our financing arrangements, will be
sufficient to meet the Company's operating and capital expenditure requirements
for at least the next 12 months. If additional financing is required, the
Company may seek to raise such funds through bank borrowings or public or
private offerings of equity or debt securities or from other sources.
8. Subsequent Events
a) Trolls Litigation
On 17 August 2007, Troll Company A/S ("Claimant") filed a petition against
the Company with the American Arbitration Association in connection with
the Company's exploitation of the Troll Company's classic "Good Luck Troll"
property, as well as an updated derivative property called "Trollz"
(collectively, the "Properties"). The petition asserts causes of action
for, among other things, breach of contract, breach of fiduciary duty,
fraud, unjust enrichment and breach of the implied covenant of good faith
and fair dealing, based on Claimant's allegations that, among other things,
the Company failed to properly exploit the Properties and failed to
properly account to Claimant for royalties generated by the Properties.
Claimant seeks to terminate its contracts with the Company for the
Properties and further seeks monetary damages in an amount in excess of
$25,000,000.
The Company denies all of the allegations raised in Claimant's petition and
intends to defend itself vigorously with respect to this matter.
b) Madeline
As reported in the 2006 Annual Report, we have been involved in arbitration
for over two years with the late author's family. A recent arbitration
decision awarded the claimants $1.2 million, including audit fees and
interest, in excess of what we had previously reserved. We intend to
appeal the arbitration decision; however we have provided for the
additional $1.2 million in the operating results for the six months ended
30 June 2007.
c) Employment Agreement
On 26 September 2007, the Company extended the term of Andy Heyward's
employment agreement through 30 April 2010. Under the terms of the
extension, the Company is obligated to pay a minimum of $880,000 annually
to Mr. Heyward. Mr. Heyward may receive a bonus if the Company meets
certain EBITDA targets (a non-GAAP measure).
9. Interim Report
This Interim Report was approved by the Directors on 26 September 2007.
--------------------------
(1) Earnings before interest, taxes, depreciation, non-film amortisation,
options expense ($533K in the first half of 2007 vs. $274K in the first half of
2006) and the one-time write-off of receivables due to the insolvency of a
domestic home video distributor ($779K in the first half of 2006).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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